Transformational Buildouts
The focus was on laying the infrastructure that could help deliver next-generation services in a fast approaching digital era
#1. Asset Optimization a Carrier Priority #2. Horizontal Digitization in the Enterprise #3. Local Manufacturing
Though the “digital” agenda has been around for a few years now, the last fiscal saw actual deployments taking place on a scale that looked meaningfully substantial. While the trend was more visible in the carrier segment, thanks to the publicly announced large deals, the enterprises were not left behind either.
Both carriers and enterprises grew increasingly conscious of the need to deploy and upgrade to next-generation gears that would, in turn, enable digitization at a service level. However, in the carrier segment, where the stakes are much larger, there was something bigger at work. It wasn’t about one technology or the other, but about how and why the technologies were being deployed; it was about optimizing the existing assets. Given that spectrum turns out to be the priciest asset, all strategic technology decisions were increasingly taken with the objective of achieving greater spectral efficiencies.
For enterprises, with more and more IT moving into the cloud, it became increasingly evident that the enterprise networks had to be future-proofed for a cloud-driven era. This meant that the data centers, whether third-party or captive, were to be cloud-enabled in some way or the other. However, the tight IT budgets and high costs of having a captive
private cloud make it uneconomical to a large number of enterprises. This led to the development of private cloud, virtual private cloud and hybrid cloud offerings by the third-party data center providers such as Netmagic, Sify, NxtGen and Tata Communications with facilities located in India. Compliance issues are prompting global data center service providers like Microsoft, Amazon Web Services (AWS) and IBM to set up locally hosted cloud facilities. All of this is contributing to the development of the networking infrastructure market as well locally.
Another set of catalysts are coming from government driven programs like Smart Cities and Make in India, which are encouraging the development of a locally vibrant ecosystem, which in turn further strengthens the networking infrastructure as well as user-device markets.
Let’s take a deeper look at some of the key demand-side trends that helped shape the networking equipment and device markets during the fiscal gone by:
#1. Asset Optimization a Carrier Priority
Yes, while LTE network rollouts happened on a large enough scale, so did the 3G rollouts. Carriers also looked beyond, at technologies like Voice-over-LTE (VoLTE) and LTE Advanced (LTE-A). While the costs associated with these new networks appear to be in contrast with asset optimization, from a strategic standpoint it’s not.
The attraction of LTE-A, for example, lies in the technology’s potential to harness seemingly fragmented bands of spectrum for improved service delivery, which in essence amounts to using a technology for optimization of the spectrum assets. And as noted above, spectrum is the priciest resource that telcos hold.
With operators having spectrum in diverse bands such as 850 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz, and so on, they are faced with fragmentation of spectrum, which is leading to underutilization of the precious resource. LTE-A helps aggregate two or more spectrum bands into one and enables operators to offer download speeds up to 450 Mbps. The advantages of offering such ultrahigh-speed mobile broadband, especially for premium customers, are obvious for operators.
That said, operators are not jumping on to LTE-A all over. They are picking up the technology on the basis of different parameters such as the category of the service area; amount of spectrum available there; the existing competitive landscape in that service area, and so on. This has led to a mixed rollout of 3G, 4G LTE and LTE-A.
Contrary to earlier years, when Reliance Jio had been the only operator commissioning large-scale LTE rollouts, the fiscal 2016 saw at least two more providers—Bharti Airtel and Idea Cellular—joining in a big way. Vodafone’s 4G investments had to be somewhat limited due to an insufficiency of spectrum in the desired frequency bands.
This was duly reflected in the performances of the key network infrastructure players like Ericsson, Nokia and Huawei, all of which bagged network rollout deals of various scales. The network infrastructure industry revenues saw an exceptionally strong growth of around 50 percent, a performance that is likely to stay for the coming two years at the least.
The LTE deals very much rained throughout the year, though 3G rollouts also continued to happen. However, the most distinguishing aspect this year was a strategic call by the major operators to go for an IP Multimedia Subsystem (IMS) architecture. While this was largely driven by an immediate need to offer Voiceover-LTE (VoLTE) to the 4G subscriber, it also would prepare them better for internet of things (IoT) play in the nottoo-distant future.
Another key highlight of the year was that the industry found a way to better tackle the Hetnet environment it is saddled with, as different generations of networks continue to coexist. The vendors offered single-box radio support for 2G, 3G and 4G technologies.
For example, Ericsson bagged a deal from Idea Cellular to deploy a 4G LTE network and to transform its existing 2G and 3G networks. As part of the network infrastructure, Ericsson is installing its multi-standard RBS 6000 radio base stations, which support various 2G, 3G and 4G LTE technologies in a single cabinet. For the rollout of 4G LTE in the Delhi circle for Airtel too the RBS 6000 radio base station formed a core part of the infrastructure component.
Finnish telecom giant Nokia also gained traction on the back of its single-RAN technology. It bagged a three-year contract from Vodafone to provide LTE networks in Mumbai, Kolkata and Punjab. It also signed a deal with Airtel to expand its 4G partnership to five circles for FDD-LTE technologies and two additional circles for TD-LTE technologies. Additionally, it bagged the deal from Idea Cellular to roll out 4G networks in three circles, namely Kerala, Andhra Pradesh and Haryana.
Among other notable deals, Vodafone awarded 4G rollout deals for two circles to Huawei Technologies, which also won a three-year contract from Telenor (Uninor) to modernize and manage its network across six circles.
#2. Horizontal Digitization in the Enterprise
First thing first: why the term, horizontal
The most distinguishing aspect this year was a strategic call by the major operators to go for an IP Multimedia Subsystem (IMS) architecture.
digitization? Well, primarily because when speaking in the context of networking equipment, there are two key areas where digitization is taking the front seats. Both these areas are horizontals, in that they cut across all verticals. These are—the data center, and the government.
The primary drivers of digitization are different though, in both the horizontals. While in the data centers, cloud-related aspects rule the roost, in the government, the charge is currently being led by smart cities, which is tantamount to internet of things (IoT) and machine-to-machine (M2M) networks.
Among the most significant cloud data centers to come up, or in the works, include the ones from the global cloud platform and service providers, Microsoft, Amazon Web Services and IBM. Microsoft had three sites—in Pune, Chennai and Mumbai—up and running by September 2015. Also, the third-party data center service providers are cloudifying parts of their assets in order to tap into the growing hybrid cloud opportunities.
The next-generation switches, routers and other networking gears, including the more task-specific ones like load balancers, are being deployed to match the agile networking needs of these cloud data centers in particular, as also the other data centers. Vendors are already putting software defined network (SDN) features to good use for data center networking.
The government’s 100 Smart Cities program has emerged as another big area of opportunity for the networking industry. The first list of 20 smart cities was finalized last fiscal, followed by a fasttracked list of 13 more cities. A next list is already in the works and once released, it could take the total tally of finalized cities up to 40.
A fundamental building block for the smart cities would comprise various smart solutions, which could have applications in areas ranging from lighting, surveillance and traffic management to water management and conservation. At the heart of enabling these smart solutions, ideally, lies an intelligent flow of information into an analytics system, which makes the role of networking of paramount importance.
M2M connections are expected to be driven by areas such as home security, building automation, healthcare, and consumer electronics; while the IoT segment drivers would include wearables that are going mainstream, apart from applications such as smart metering, smart buildings, et al. All these deepen the need and scope for networks that foster seamless connectivity and information sharing.
On an average, an investment of Rs 1,000 crore is expected to go into the development of a smart city, of which Rs 500 crore would be funded by the central government. While only a part of this spend would be on networking and related infrastructure components, it still presents a sizable growth opportunity for the networking industry. More importantly, the development of smart cities is expected to pave the way for digitization in sectors outside of the government.
#3. Local Manufacturing
Again, the government had a major role to play, with the Make in India program acting as the big catalyst. The fiscal 2016 saw a number of local manufacturing projects that had been announced in the previous year, becoming ground realities.
While all the major mobile phone vendors are growing the share of local manufacturing for their mobile phone shipments in the India market, the bigger boosts have come in the form of mega announcements from contract equipment manufacturers like Foxconn.
However, it is argued that handset manufacturing in India is still mostly about assembling the semi-knocked down (SDK) units at the facilities set up locally, and that full-scale manufacturing is a far-away thing. A key reason cited is the lack of a component manufacturing ecosystem, which is pervasively vibrant in China. This factor becomes all the more significant, considering that the mobile phones market is highly competitive and vendors are under constant pressure to come out with new features and the turnaround times for new models are very short. In the absence of a local component manufacturing ecosystem, the options become so limited that differentiations become hard to achieve.
However, there are also some key positives that could work in favor of local manufacturing in India. Perhaps most importantly, growth for component makers, just as for the smartphone makers, is slowing in China while competition remains wafer-tight. As a recourse, the players there are looking to tap into a growth market like China, where smartphone penetration is yet to cross a threshold. Labor costs in China are also rising to levels where they start looking unattractive to manufacturers as well as investors. On the other hand, the incentives offered as part of Make in India program could potentially make local manufacturing propositions more attractive.
In what could be seen as a significant development, around 100 component manufacturing companies, mostly from China, participated in a January 2016 summit organized in Delhi by the Indian Cellular Association (ICA) and Mobile World (Shoujibao) of China.
Fiscal 2016 saw a number of local manufacturing projects that had been announced in the previous year, becoming ground realities.